Wednesday, June 13, 2012

Facebook is culture. It’s etiquette. It’s inside our language and our love lives. And it changed us all in eight short years.

Our relationship with mainstream Facebook? It’s complicated.

We love watching far-flung friends grow up before our eyes. We love sharing our accomplishments in pursuit of the life-affirming “Like.” We hate fumbling through layers of privacy, maintaining relationships with people we dislike, and suffering the minutiae of life in the town square.

These notions will persist, since social media isn’t going anywhere. But every great empire falls. As its forerunners did, Facebook will grow heavy under its own girth, decay from within, and collapse.
The question is, when and why will it happen?

Many analysts agree it won’t be soon. It’s likely we’ll look back on Facebook 2012 as a golden age for the company. Its traffic and user base have climbed ever skyward thanks to its posture not only as a social network, but as an identity platform a critical piece of online infrastructure.

“I actually don’t think anything would kill Facebook in any near-term scenario,” says David Kirkpatrick, the journalist who literally wrote the book on Facebook’s ascendance. “But I do think that Facebook could enter into a phase of decline, based on a lot of different possible developments.”

The Regulatory Challenges of Building a “Parallel Internet”

For decades, the Internet has been a distributed entity. No one person or company owns it. There are rules about names and numbers how computers can talk to each other. But if you want to access or create content there, no one can stop you.

But imagine a world where Facebook is so critical to personal and corporate identity that you couldn’t communicate effectively without it. In order to access this “parallel Internet,” you’d have to go through a single company. Legally speaking, that gets dicey, according to Kirkpatrick.

“I think regulatory interference is one thing that could radically hobble Facebook, probably not kill it,” he explains. “Facebook’s role in the global economy is becoming so complex and central to communications in a very, very fundamental way. The responsibilities that come upon a company in that role are really, really challenging.”

To understand the implications, don’t think of Facebook as a website or even a social network, but as a telecom company.

“It’s really about the consequences of a company controlling a federal piece of Internet infrastructure, particularly one that has to do with identity,” says Kirkpatrick. “I happen to believe that Mark [Zuckerberg] is very cognizant of those responsibilities and takes them very, very seriously.”

Having spent a lot of time with Zuckerberg, Kirkpatrick is confident the CEO knows what he’s up against. But the pitfalls of government regulation can thwart even the most prepared.

“Tech companies typically disregard governments until well into their lives, and historically don’t have a lot of lobbyists. Facebook basically disproves that rule. Hiring [COO] Sheryl [Sandberg], Mark, at a very early stage of the company’s development, signaled his own understanding of the central role of government in Facebook’s success,” says Kirkpatrick, referring to Sandberg’s prior role as chief of staff for the U.S. Treasury Department.

Beyond regulatory challenges, the very notion of an Internet operated by a single company defies the promise of the web, according to Alexis Ohanian, co-founder of the social news site Reddit and author of the forthcoming book Without Your Permission.

“A private Internet is the antithesis of the open Internet, which is a public good we all own, work and play on,” Ohanian says. “I don’t believe it’s sustainable, because it’s the openness of the Internet that makes it so valuable. It’s the most level playing field in the world.”

Ohanian is confident that the majority of web users won’t stand for a closed future. “I can launch an idea today and start drinking the milkshake of all the incumbents tomorrow, based solely on the merit of my creation. I shouldn’t have to get permission to build on someone’s ‘private Internet,’” he explains. “People will be content in ‘Facebook’s Internet’ until the experience sours or something better comes along.”

Hackers Meet Madison Avenue

Many factors contributed to the decay of MySpace, but pressure to monetize was a critical one. Felix Gillette’s Businessweek story “The Rise and Inglorious Fall of MySpace” chronicles the challenges faced by the social media juggernaut after it was acquired by News Corp.
While developers at Facebook, Tumblr, and Twitter startups backed by venture capital were more free to design their products without the immediate pressure of advertising goals, Myspace managers had to hit quarterly revenue targets. That pressure increased dramatically in the summer of 2006, when Google paid $300 million a year for three years to be the exclusive search-engine provider on Myspace on the condition that the social network hit a series of escalating traffic numbers.

In retrospect, [co-founder Chris] DeWolfe says, the imperative to monetize the site stunted its evolution: “When we did the Google deal, we basically doubled the ads on our site,” making it more cluttered. The size, quality, and placement of ads became another source of tension with News Corp., according to DeWolfe and another executive…

“There was a lot of pressure to drive revenue,” adds Shawn Gold, Myspace’s former head of marketing and content. “There were things that we knew would be more efficient for the user that we didn’t act on immediately because it would reduce page views, which would have hurt the bottom line.”
Going public is much different from being acquired by a media conglomerate, but could the IPO put an indirect strain on user experience over the long term?

“It could, and I worry about that,” says Kirkpatrick. But he is fairly confident in Zuckerberg’s ability to steer the company clear of bad revenue decisions. “Mark will not do what he does not want to do, and that’s a buyer beware statement for investors in the IPO. Nobody who invests in Facebook should have any illusions that they are going to be in control of that company.”

But some, like Dr. Eric Jackson, disagree. The founder and managing member of Ironfire Capital LLC wrote a recent column for Forbes with reasons companies like Facebook and Google could disappear within five years.

“People are making a lot of assumptions about how quickly they’re going to make money off of 900 million users. History shows us that concepts can sound great on an IPO roadshow,” says Jackson, noting the substantial gulf between Facebook’s 2011 revenue ($3.71 billion) and the valuation of the company, which was reported at $116 billion at the time shares hit the market on May 18. “We’re just going to know all this information about [users] and try to figure out the huge value. Sometimes it’s just not that simple, and things can fall down.”

Jackson also warns that the culture of Facebook and its management may not align with Wall Street when it comes time to re-evaluate the business model.

“I would imagine with Facebook, they would think that the ‘hacker way’ works. ‘That’s what’s made us successful [in the past].’ But they’re still going to have to monetize in the future,” says Jackson. “I mean, the hacker way and Madison Avenue they don’t exactly mesh cultures. And yet I could see Facebook thinking, ‘Well, this is the way we are, and the advertising world is going to have to adjust to us.’ Those are the kinds of mistakes companies make and shoot themselves in the foot. It’s slowing them down while others blow past them.”